LowCards.com Weekly Credit Card Update June 22
Record-low interest rates are useless to the millions of borrowers with less-than-perfect credit scores. They end up paying a high premium when applying for everything from credit cards to home mortgages. This comes at a time when the number of Americans with poor credit is growing. Most lenders check borrowers’ FICO credit score, which ranges from 300 to 850, to determine whether to approve them for financing and at what terms. In general, borrowers with a FICO below 720 will end up with higher interest rates and could have a harder time getting a loan. Today, nearly a third of consumers have a FICO
score in the 550 to 699 range – the highest since 2006, according to April data from FICO. And nearly half of consumers have a FICO score that’s lower than 700.
Story by AnnaMaria Andriotis for SmartMoney
Julian Bermudez noticed something new on his latest Citibank credit card bill. Down at the bottom, right beside where he’s supposed to fill in the amount of his payment, was a box to be checked if he wants to sign up for Citi’s Watch-Guard Preferred security service at a cost of $5.95 per month. And the box was already checked. You have to dig deep to find out who’s really behind this Watch-Guard Preferred thing and to discover that the company offering the ID theft protection has had to shell out millions of dollars in settlements with state attorneys general. A quick look at the fine print, though, reveals a
few catches. For example, you may still have to deal personally with certain financial institutions, the Department of Motor Vehicles and the Social Security Administration–Watch-Guard can’t intervene on your behalf with these guys. And then there’s this beauty of a condition, common to many financial-services contracts: “Watch-Guard Preferred may modify or terminate any benefit upon notice.” So much for peace of mind. At least you’d think you can sleep well at night knowing that Citi has your back. But even though the fine print says Watch-Guard “is provided” by the bank, it notes that “all program features are provided and administered by WatchGuard Registration Services.”
Story by David Lazarus for the Los Angeles Times
Despite protests from the financial industry, the Consumer Financial Protection Bureau is making its online credit card complaint database available to the public. The information can show which issuers have had the most complaints on their cards and how specific complaints were ultimately handled. The data can be viewed online by company, consumer zip code and type of complaint. The CFPB began taking credit card complaints on July 21, 2011. Through June 1, 2012, the Bureau had received nearly 17,000 credit card complaints. Billing disputes are the most common complaint, followed by interest rate issues. More than 2,000 complaints received financial compensation from the issuer to the consumer with $25 being the most
common amount of compensation; the median amount was $130.
Story by Lynn Oldshue for LowCards
As of July 22, JPMorgan Chase will no longer charge its checking account customers overdraft fees for any purchase of $5 or less. The change will help eliminate multiple overdraft fees–charged when customers overspend their account–for small purchases. Say that you have overdrawn your account and have a negative balance of $60 (probably incurring an overdraft fee of $34). Then you use your debit card to buy a snack for $4.50 and a cup of coffee for $3.50. The new rule means you won’t be charged overdraft fees on the two purchases. Previously, you could have been charged a separate fee for each purchase. Chase’s notice to its customers didn’t mention that its latest policy change resulted from settlement negotiations to resolve a class-action suit filed against Chase and other big banks over the way they processed debits and charged overdraft fees.
Story by Ann Carrns for the New York Times
My longstanding recommendation that you rely primarily on plastic for travel money–credit cards for big-ticket items, debit (ATM) cards for cash–remains as valid as ever. In some cases, you can avoid fees and losses entirely; in others you pay something but lose less than any other way. For foreign travel, especially, you can’t beat plastic. Credit cards are actually improving for overseas purchases. As often noted, the standard among most U.S. banks these days is to add 3 percent to foreign charges: the 1 percent conversion fees imposed by the international MasterCard and Visa networks plus their own 2 percent fee. Several big card issuers have recently reduced or eliminated that loss, however, at least on some of their cards. And some banks give you good rates and charges for foreign currency withdrawals at local ATMs. If you’re traveling within the United States this summer, keep in mind that you’re likely to pay $3 to $5 for each withdrawal at an ATM owned by any bank other than the one where you have your account. And those private stand-alone ATMs may charge even more.
Story by Ed Perkins for Chicago Tribune
Despite concerns about the economy, Discover’s customers are using their cards more often and paying their bills on time at record rates. The company’s profit fell 10 percent in its March-May quarter, as the credit card issuer freed up less money from reserves set aside to cover customers’ unpaid bills than a year earlier as its loans increased. But credit conditions are improving. Late payment rates and customers’ loan defaults dropped sharply, reaching historic lows. Discover’s management expects that charge-offs, or loans written off as unpaid, will modestly increase over the next 12 months as the company widens its pool of borrowers. The economic shakeout of the last few years has left credit cards in the hands of more affluent consumers who are better able to pay their bills in full each month, while those with lower credit scores and presumably less ability to pay are now less likely to use credit. Tighter underwriting standards also have pushed loss rates lower.
Story by Alex Veiga for the Associated Press
The U.S. recovery is hobbled by an economic divide that separates Americans not by income or wealth but by their access to credit. The housing bust left behind millions of people with credit records damaged by plunging home prices, lost jobs, past overspending or bad luck. Many are now walled off from the low interest rates engineered by the Federal Reserve to spur the economy and remedy the aftereffects of the borrowing boom. Millions with good credit, meanwhile, are taking advantage of the easy money, a windfall in many cases for people who do not especially need it. Last year, nearly 90 percent of all new mortgages originated went to households with high credit scores; before the financial crisis, it was about half, according to Moody’s Analytics and Equifax.
Story by Jon Hilsenrath for USA Today
The Consumer Financial Protection Bureau announced this week a national public inquiry into financial elder abuse. The CFPB says it seeks to learn more about the many ways that seniors are exploited into giving up their financial assets, and to find better ways to educate seniors on how and where to look for good, reliable financial advice. One recent study says seniors were bilked out of at least $2.9 billion in 2010; the CFPB says that’s a 12 percent increase over 2008. As we’ve reported in Consumer Reports Money Adviser, this is a crime committed by strangers, “friends,” and close relatives alike. The CFPB, which is charged with protecting the interests of consumers in financial dealings, says it wants to hear from the public,
especially people working directly with seniors. And it welcomes advice on how seniors can distinguish between legitimate financial adviser credentials, and those of questionable value. Unfortunately, the CFPB doesn’t appear to have got its act together to facilitate citizen reports of chicanery and it is difficult to submit stories and comments on its website.
With debit card rewards on the decline and rewards credit cards offering larger incentives for signups and better rewards, many rewards cardholders are planning to redeem those credit card rewards to fund summer vacations. According to the Capital One Rewards Barometer, a quarterly survey of U.S. consumers, half of respondents planning summer trips will pay at least some of their travel expenses using rewards, compared with 42 percent last year. However, rewards credit cards often carry higher interest rates and fees than traditional cards, so they don’t make financial sense for everyone. Here’s a look at how smart rewards cardholders rack up points or miles–without racking up debt.
Story by Susan Johnston for US News and World Report
Based on the 1000+ cards in the LowCards.com Complete Credit Card Index, the average advertised APR for credit cards is 14.30 percent, a slight increase from 14.26 last week. Six months ago, the average was 14.00 percent. One year ago, the average was 13.95 percent.